SMALL BUSINESSES AND THE ANTITRUST LAWS – WHY THEY SHOULD CARE

July 23, 2014

By Stephen C. Robertson[1]

This article briefly looks at the implications of the antitrust and related anti-competitive laws in Colorado through the lens of the possible effect on small businesses. By its nature, the article uses only a broad brush to suggest how small business can anticipate and avoid some major antitrust and anticompetitive law pitfalls – or at least be aware of their existence. However, because courts apply antitrust laws in very fact-specific ways, one should be careful to consider the particular facts of each matter and avoid thinking about small business antitrust issues in a one-size-fits-all way.

Almost everyone knows the rags to riches story of Ben & Jerry’s ice cream. What started as a humble, college town business grew to be a hugely profitable model that the owners eventually sold to an international conglomerate for $326 million.[2] There are lessons that we can learn from their story about why antitrust laws matter to small businesses.

In the summer of 1978, two friends opened a makeshift ice cream parlor in an abandoned gas station in northern Vermont. Using a single five-gallon ice cream maker, they churned out batch after batch of wacky flavors like Chunky Monkey and Heath Bar Crunch. In the decades that followed, Ben Cohen and Jerry Greenfield built Ben & Jerry’s into a legendary ice cream company, with more than 600 scoop shops in 35 countries around the world and annual sales now topping $500 million.[3]

The story of Ben & Jerry’s is relevant to small businesses because it illustrates a potential change in the historic view of, and pursuit of, owning and operating a small business. There is a new perception that building and sustaining a small business, and passing it down to the next generation, may no longer be the essential goal of many founders of small businesses. Instead, some wonder whether the “exit strategy” of building and then selling a small business to a larger business the new model?[4] On a very nuanced level, this may affect how small businesses are likely to view the “regulation” of the market through antitrust laws. On a more practical level, one part of the Ben & Jerry’s story illustrates a popular perception that antitrust laws are too expensive for small businesses to enforce on their own.

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Can Only The Government And Big Businesses Enforce The Antitrust Laws?

Perhaps the most interesting illustration within the Ben & Jerry’s story is the “real life” example of antitrust law and a perception of it that many small businesses may share. The founders of Ben & Jerry’s recently retold the story of their iconic marketing campaign against Pillsbury foods, the owner of Haagen Daz ice cream – and importantly, how they undertook a grass roots marketing campaign because they perceived the antitrust laws that Congress designed to protect them to be financially out of their reach. The marketing campaign was, therefore, not born of competition; rather it was what they saw as their only alternative to expensive legal action over anticompetitive actions by a dominant market player:

At some point, Pillsbury came to the distributors and told them to drop Ben & Jerry’s or they would stop selling them Haagen Daz, which was a profitable item for these distributors. So they were going to stop selling our products. We knew that trying to sue Pillsbury, a $4 billion company, wouldn’t work, so, we decided to take our case to the people with a campaign called ‘What’s the Doughboy Afraid of?’[5]

In the end, the campaign was successful, and Pillsbury received so many complaints about its actions that it decided to stop pressuring its distributors to drop Ben & Jerry’s.[6]

Is there a lesson to be learned about antitrust law from this story? Is antitrust law the playground of the rich? Is the only way a small business can be involved in antitrust law as a victim or as the David in a David and Goliath story – winning against all odds through a viral marketing campaign?

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Many small business persons are familiar with the term “Sherman Act” but have little idea how it and its related progeny may affect a small business. Many may also view antitrust regulation as one that affects only large companies, with small businesses, if they play a role at all, as the likely victim.[7] The reality of antitrust law is more gray.

The instances of the government, either the United States Department of Justice, or the Colorado Attorney General’s Office, focusing on potentially anticompetitive actions of small business are rare. The reasons for the rarity, however, may be both a lack of resources and a perception that the antitrust laws are more effective in protecting against big business violations. As a general rule, the government perceives small businesses as more likely to be the victim of antitrust violations than the perpetrators. The Chief of Staff of the United States Department of Justice Antitrust Division, has stated, “although it is important to understand the consumer benefits of antitrust policy, it is also important to know that the central role of antitrust in maintaining a competitive marketplace also benefits small businesses in a direct and very significant way.”[8]

That statement, while it lauds the role of enforcement as a benefit to small businesses, contains an implicit concession that the Justice Department focuses on antitrust violations of large companies and that the positive effect on small businesses is essentially a trickle-down benefit that small businesses gain from being consumers. To be fair, though, the same article notes that small businesses are frequently the victims of such anticompetitive schemes as price fixing and that precluding that type of activity is one of the Department of Justice’s priorities.[9]

Although one would be hard pressed to find a public confirmation of it, it is highly likely that the Justice Department simply doesn’t have the budget to police not only violations by large companies, but also violations by small ones. The same probably applies to the Colorado Attorney General’s Office, and the dearth of reported cases that it has brought against small businesses confirms that likelihood.iq option review In the private arena, however, small business may face claims of unfair trade practices from other small businesses. The corollary is, of course, also true: small businesses may have antitrust claims against others.

Small Businesses As Plaintiffs And Defendants In Antitrust Litigation

A recent case in Colorado’s Unites States District Court helps illustrate that small businesses need to be aware of antitrust law, it prohibitions, and its nuances, in order to avoid being a defendant in antitrust litigation.[10] Also, they should be aware of how the antitrust laws potentially empower them to fight improper anti-competitive conduct in their markets. The case illustrates that small business can prosecute antitrust claims on their own, albeit not without significant resources.

In Christou v. Beatport,[11] the Plaintiffs were a set of nightclubs in Denver – all small businesses. The Defendants were a music downloading company (Beatport), a nightclub (Beta), a talent agency (AM Only) and an individual affiliated with some of the Defendants (Brad Roulier).[12] The corporate Defendants were predominantly small businesses – with the possible exception of Beatport, the music downloading service. The litigation was expensive and lengthy, and in the end, two defendants had settled, and the last set of Defendants went to trial.[13]

The allegations in Christou were legally complex: they included federal antitrust claims under Sections 1 and 2 of the Sherman Act and related state claims.[14] The significance for this article is that several small businesses were involved, both as plaintiffs and as defendants. And, it illustrates that small businesses should be aware of, and protect themselves against, antitrust claims.

The lynchpin argument in the Christou case was that one of the owners of Beta nightclub, Mr. Roulier, who was also an owner of Beatport, had allegedly used the prestige and market power of Beatport to coerce high-end DJs into playing only at his nightclub, Beta. The Plaintiffs alleged that in doing so, he threatened DJs who played at the clubs of the Plaintiffs that he would punish them by not featuring them on Beatport. Therefore, the Plaintiffs argued, he “tied” the products of nightclub performances by DJs to promotion on Beatport, in violation of the Sherman Act’s prohibition on tying.[15]

To delve into the detailed allegations and facts of the Christou case is beyond the scope of this article, but suffice it to say that if some of the defendants had been more aware of antitrust laws, and if their employees and owners had acted, spoken, and written more carefully with those laws in mind, the Plaintiffs may not have been able sustain the case.[16] What is noteworthy for small businesses, and their counselors, is that the Plaintiffs’ claims sprang from rather mundane facts and allegations.

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For example, the Complaint alleged that “Mr. Roulier said in a March 14, 2008 interview with the Denver Post, ‘[w]ith [Beta’s] relationship with Beatport we think most of the DJs will want to play for us.’”[17] While such a statement is certainly not proof of a tying relationship in violation of antitrust laws, one can read it to suggest that Beatport and Beta were tied together. And the Plaintiffs, indeed, argued that such “tying” was a violation of the Sherman Act.[18] If Mr. Roulier had been aware of the antitrust implications of suggesting a tie between Beta and Beatport, he may have avoided using such language and in turn avoided costly litigation.

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In the end, Mr. Roulier and Beta – the parties accused of being the driving force behind the violations – took the case to trial and prevailed. It was, however, a pyrrhic victory, costing those Defendants well over a million dollars to win.[19]

State vs. Federal Antitrust Causes of Action

Although the Christou case included supplemental state claims, such as conspiracy and theft of trade secrets, it did not include state antitrust claims – despite Colorado’s antitrust laws which parallel the federal counterparts. An electronic search for cases involving state antitrust claims results mostly in claims brought by the State’s Attorney General’s office, contrasted with private parties, and even those are few and far between. For example, in 2012, there had been no reported cases on the bid rigging section of Colorado’s antitrust regime passed in 1992.[20] Otherwise, there are odd cases in which antitrust claims seem to be ancillary and in which they are used as defenses.[21]

It is hard to imagine any federal conspiracy to monopolize claim under the Sherman Act that would not easily incorporate a state conspiracy claim.[22] That said, in most circumstances it is hard to imagine what the benefit of adding such a claim in a federal “kitchen sink” complaint would be – other than to annoy the judge. As the Christou case demonstrates, however, antitrust claims are complicated and likely to be entwined with other, related claims such as interference with business opportunities, conspiracy, and theft of trade secrets.

One notable difference for small businesses, and all other plaintiffs for that matter, is that federal claims allow treble damages while state claims generally do not.[23] The threat of treble damages is the difference most likely to drive plaintiffs to federal court when they ponder the venue for an antitrust case. But that is not the end of the consideration. Counsel to small businesses must remain aware of the potential overlap of federal and state regimes that relate to competition – not just the “pure” antitrust laws, but also the related causes of action that often accompany antitrust claims.

Ancillary Causes of Action

Although small businesses may be generally aware of claims such as intentional interference with contractual relations,[24] civil conspiracy,[25] and related business torts, they are likely to be unaware that the elements of these claims can supplement or even form the foundation of antitrust claims. There are too many potentially related claims to address here, but I offer a few examples for illustration.

Consider a claim of intentional interference with prospective business in Colorado. To prove such a claim, the plaintiff must establish that “intentional and improper interference prevented a contract from being formed.”[26] The best defense to such a claim is that fair competition and normal interference through competition is not forbidden.

However, some interference is not permissible. If [the actor] diverts the competitor’s business by exerting a superior power in affairs unrelated to their competition [it does not support the policy of] encouraging competition. For this reason economic pressure on the third person in matters unrelated to the business in which the actor and the other compete is treated as an improper interference.[27]

This example demonstrates that actions that negate the defense of fair competition in a claim related to prospective business could also establish the elements of improper competition in the antitrust arena. To use the Christou case as an example, the “economic pressure” related to promotion on a music downloading site is “unrelated to the business in which the [plaintiff and defendant] and compete” – that is nightclubs where DJs perform.

Another example of a generic business tort that could establish or intertwine with antitrust claims is civil conspiracy. “There are five elements required to establish a civil conspiracy in Colorado. There must be: (1) two or more persons, and for this purpose a corporation is a person; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful overt acts; and (5) damages as the proximate result thereof.”[28] A very simple example of how this claim could overlap with antitrust issues is in the “price fixing” arena.

Price fixing, or colluding, may be one of the biggest antitrust concerns that small businesses face. The statutes and case law are clear that even small companies can run afoul of the law if they attempt to coordinate a market. And just as importantly to small businesses, they need to be aware that particular acts may precipitate an antitrust action even if that action is unlikely to be successful.

One of the few antitrust cases reported in Colorado state courts, Amos v. Aspen Alps 123 LLC,[29] is an example of how antitrust laws may apply to surprisingly small markets, in that case a single condominium, and how those claims could overlap with conspiracy claims. In Amos, the defendants in a foreclosure action asserted state antitrust claims (as a defense to foreclosure) against an LLC and a group of bidders on the property, claiming that the group conspired to keep the price of the foreclosure sale artificially low by buying the property together instead of biding against each other – in other words by price fixing.

Although the trial court refused to allow an amendment that alleged a conspiracy between the bidders, [30] the elements of a conspiracy perfectly fit the factual allegations that underlay the defense of bid rigging: there were multiple parties who agreed to artificially reduce the price of the sale. They acted on that agreement, and the wrongful act was an antitrust violation. The damage was a lower price than the free market would have supplied.

Another area law that overlaps with antitrust issues is non-compete agreements. Although more tenuously connected to antitrust, non-competes overlap with some of the core issues: who can compete with whom and on what terms. There is, of course, the contractual overlay in a non-compete that differentiates from antitrust law, however.[31]

Surprising Everyday Antitrust Issues

As with all claims against businesses, antitrust claims can be surprising for their inventiveness. Because the potential remedies in federal court include treble damages, however, small businesses need to at least be aware of antitrust issues because they may be more likely to face antitrust claims (even if unsuccessful ones) than they may imagine.

Antitrust cases that parties have recently brought in federal district court in Colorado run the gamut in both theory and fact. However, some cases illustrate the danger to small businesses of being unaware of antitrust implications both in the regular course of business and within general commercial litigation. Potential examples could fill a textbook; this article attempts to make the point, with several such examples, that practitioners, and in their turn, small businesses, must at the very least remain vigilant to “issue spotting” antitrust complications.

As a final example, a small business that was party to a relatively small contract, found itself in federal court facing antitrust claims in Nat’l Ass’n of Investors Corp. v. Bivio, Inc.[32] The basis for those claims? The Plaintiffs alleged that certain language in a settlement agreement restricted trade.[33] Who would imagine that what many would consider standard “non-disparagement” language in a settlement agreement would lay the groundwork for an antitrust claim?[34]

In that case, the parties had settled previous litigation in principal.[35] In the preceding case, “the parties agreed to resolve their dispute and signed a “Material Terms of Settlement Agreement” contract (“MTSA”). [T]he MTSA stated: “The parties agree to a mutual non-disparagement clause.” . . . The Original Action was dismissed based on this settlement.”[36]

In the second litigation, “Plaintiff allege[d] that Defendants violated Section 2 of the Sherman Act by attempting to force Plaintiff to enter into a settlement agreement that contained an anti-competitive non-disparagement clause.”[37] The Court in Bivio, determined that the Plaintiff had failed to state a claim for antitrust violations because the “Plaintiff has failed to cite authority showing that an agreement not to make false statements about a competitor would violate the Sherman Act.”[38]

As most businesspersons have heard from their attorneys at one point, however, just because an adversary can’t win a lawsuit based on certain claims, does not mean the adversary won’t sue. That advice is particularly sharp when it comes to antitrust claims which, even on the edge of propriety, can cost vast sums to defend.

Conclusion

Antitrust claims are probably more common than most small business owners imagine. And, although they don’t arise every day, if they do they can be costly and disruptive. Further, businesses may have antitrust claims against others that they may not recognize or appreciate – and they may, like the owners of Ben & Jerry’s, assume that they can’t afford to prosecute them. Of course that may, or may not, be the case, depending upon the business’ resources and the facts at hand, and its potential opponent’s resources.

At the very least, however, small businesses and their counselors should remain vigilant regarding the hallmarks of antitrust violations so they can craft their actions and words to avoid, as best they can, potential issues that may implicate the antitrust laws and so they can recognize the same in other parties that may be violating those laws.

[1] Stephen Clawson Robertson is a partner at Robertson Law Firm, PC. He focuses his practice on business litigation and business advice. (303) 825-1015, Stephen@Robertsonlawpc.com robertsonlawpc.com
[2] Shelly Branch and Ernest Beck, Unilever Buys Ben & Jerry’s, SlimFast for Over $2.5 Billion, Wall Street Journal, online, April 13, 2000. http://online.wsj.com/news/articles/SB955522850788928066.
[3] J.D. Harrison, When We Were Small: Ben & Jerry’s, Washington Post, May 14, 2014. http://www.washingtonpost.com/business/on-small-business/when-we-were-small-ben-and-jerrys/2014/05/14/069b6cae-dac4-11e3-8009-71de85b9c527_story.html?hpid=z1.
[4] See, e.g., “Small Business and Antitrust: Why the Little Guys Left the Fold and Why They Should Return” January 21, 2000, Albert A. Foer, American Antitrust Institute, Presented to the SBA Program on “The Invisible Part of the Iceberg: Research Issues in Industrial Organization and Small Business” http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CCgQFjAA&url=http%3A%2F%2Fwww.antitrustinstitute.org%2Ffiles%2F51.pdf&ei=Z99zU5uaHY63y
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[5] J.D. Harrison, When We Were Small: Ben & Jerry’s, Washington Post, May 14, 2014.
[6] Id.
[7] See, e.g.,Antitrust, Innovation, Entrepreneurship and Small Business, Adam M. Golodner, Chief of Staff, Antitrust Division, U.S. Department of Justice, presented at the Small Business Administration Conference on Industrial Organization, January 21, 2000.
[8] See, e.g., Antitrust, Innovation, Entrepreneurship and Small Business, Adam M. Golodner, presented at the Small Business Administration Conference on Industrial Organization, January 21, 2000.
[9] Id.
[10] As the judge noted, however, there appeared to be an unusual amount of animus between the two main parties, and that also contributed to the litigation and its expense. SeeChristou v. Beatport, 10-cv-02912-RBJ-KMT (D. Colo.) Order, page 18, Docket #304 (“This was much like a “divorce,” and it was contested with the emotion and rancor sometimes found in marital divorces.”).
[11] Christou v. Beatport, 10-cv-02912-RBJ-KMT (D. Colo.).
[12] The author of this article represented AM Only in this matter.
[13] See notices of settlement by Beatport and AMOnly, Docket #101 and #199.
[14] The Plaintiffs alleged 1) unlawful tying; 2) monopolization; 3) attempted monopolization; 4) conspiracy to monopolize; 5) conspiracy to eliminate competition; 6) theft of trade secrets under state law; 7) violation of the RICO Act; 8) intentional interference with prospective business expectancies; and 9) civil conspiracy under state law.
[15] The Plaintiffs brought tying claim under 15 U.S.C. § 1, alleging that “Defendants acted in concert to advance a tying arrangement whereby A-list DJs would perform live within the Denver metro area only at Beta, at the exclusion of [the Plaintiff]’s venues, out of fear that otherwise they would lose their access to or promotion by Beatport.” Complaint at ¶73, Docket #1.
[16] The Plaintiffs allege that the individual Defendant, Brad Roulier, had threatened to essentially blacklist particular DJs from Beatport if they did not avoid the nightclubs of the Plaintiffs. See, e.g., Complaint at ¶52, Docket #1.
[17] See, Complaint at ¶55, Docket #1.
[18] Complaint at ¶¶69-78.
[19] The “Beta” Defendant partially won a motion for costs, and attorneys’ fees, but recovered only about $84,369.28 out of $759,323.50. See Docket #304. In addition to attorneys’ fees, the “Beta” Defendants also paid $353,368.31 to experts. See Docket #297.
[20] See Amos v. Aspen Alps 123, LLC, 280 P.3d 1256, (Colo. 2012) (“There are no cases in Colorado interpreting section 6-4-106. We therefore look to federal antitrust cases as our guide when interpreting the Colorado Antitrust Act.”). Id. at 1262.
[21] See Amos v. Aspen Alps 123, LLC, 280 P.3d 1256, (Colo. 2012), in which the defendants in a foreclosure action asserted state antitrust claims against a group of bidders on the property, claiming that the group conspired to keep the price of the foreclosure sale artificially low by buying the property together instead of biding against each other.
[22] For instance, 15 U.S.C. §2, makes it illegal to conspire to restrain monopolize a market. In order to prove a conspiracy to violate § 2 of the Sherman Act, “(1) The plaintiff must demonstrate a combination or conspiracy to monopolize; (2) there must be overt acts done in furtherance of the combination or conspiracy; (3) the defendants must have a specific intent to monopolize; and (4) the combination or conspiracy must have an appreciable effect upon commerce. Dreiling v. Peugeot Motors of America, Inc., 850 F.2d 1373, 1382 (10th Cir. 1988).

The elements of common law conspiracy under Colorado law are parallel: “There are five elements required to establish a civil conspiracy in Colorado. There must be: (1) two or more persons, and for this purpose a corporation is a person; (2) an object to be accomplished; (3) a meeting of the minds on the object or course of action; (4) one or more unlawful overt acts; and (5) damages as the proximate result thereof. Jet Courier Service, Inc. v. Mulei, 771 P.2d 486, 502 (Colo. 1989).